AUSTIN, Texas — In many ways, South by Southwest is the ultimate laboratory for a service like Highlight, the location-based social networking startup that is quickly becoming the belle-of-the-ball at this year’s conference. Highlight notifies users of people in their vicinity who share their interests or friends. And at a hip, tech-heavy event like SXSW, those notifications are flying fast and furious.

Highlight is at the forefront of a new generation of mobile services that use location data to create social networks. The service is a natural evolution of previous mobile services like Foursquare, which allowed users to check-in at specific locations. Highlight takes that concept a step further by notifying users of like-minded people in their immediate area.

“Nothing affects our happiness more than the people in our lives,” says Paul Davison, Highlight’s 32-year-old founder and CEO. “But the way we find these people and bring them into our lives always has been completely random and inefficient.”

Davison’s goal is to use mobile technology to combat the fundamental randomness that limits so many of our human interactions to chance. “We don’t realize how bad it is because it’s always been that way,” he says. “Most people people walk around like ants hoping that by randomness they’ll intersect paths with the person of their dreams. Sometimes it happens, but many times you’ll never meet.”

Highlight, which currently has two employees including Davison, is only 6-weeks-old — the service launched on January 24 — but it’s already become one of the most-buzzed-about startups at SXSW. The company has already raised venture capital from Benchmark, SV Angel, and Crunchfund. He won’t disclose how many users the service has yet, but judging by word of mouth, that number is growing quickly.

Highlight users log in to the service using their Facebook profiles. The app then pulls data from those profiles to determine if there are matches in your immediate area — which is set at a radius of 100 meters for SXSW, according to Davison. The service is only available for the iPhone, but Davison says that a version for Google’s Android mobile operating system will arrive at some point, though there is no timetable.

Davison’s background reads like the ultimate startup-founder biography. The San Diego native graduated from Stanford and then earned his MBA from Stanford Business School (with an internship at Google in the middle). He cut his teeth on tech at consulting firm Bain and Co. before joining database startup Metaweb, which was acquired by Google in 2010.

But rather than joining the search giant, Davison decided to launch his own startup. He joined Benchmark Capital as an entrepreneur in residence with 10 ideas for companies in his head, before deciding on a location-based, mobile service for people discovery.

Of course, in this day and age, privacy is a critical concern, and it’s clear that Davison is focused on that issue. He’s aware that there is a certain creepy connotation to being able to see who is in your immediate vicinity. But everyone on Highlight has chosen to install the app, so no one will show up on anyone else’s phone unless they’ve made the decision to make themselves available.

In the months ahead, Davison says, Highlight will introduce new features to give users more control about the types of people notifications they receive. Davison and his backers are betting that once people give Highlight a try, many people will see its benefits.

“Take a city like San Francisco,” Davison says. “San Francisco is a city of 800,000 strangers. You sit on the bus next to each other. You stand in line next to each other. You go to bars and meetups to meet each other. You walk by each other on the street. And you don’t know anything about anyone you see.”

Highlight aims to fix that, Davison says, by giving people a “sixth sense” about the world around them. Judging by the reaction so far at SXSW, that’s a capability that has already captured the attention of many. Time will tell if Highlight catches on beyond the early-adopter types who frequent tech conferences. But if it does, we may someday soon be as comfortable with this kind of location-based people discovery as we are with Facebook.